Are Payroll Penalties Holding Back Padres' Pursuit Of Players?

As the calendar nears February, just a couple weeks away from the beginning of spring training, the San Diego Padres' roster feels incomplete.

Another starting pitcher and a player on the right side of the infield, whether at second base or first, would make Friars fans more comfortable as the Padres attempt to dethrone the Los Angeles Dodgers not only in the NL West, but as two-time defending World Series champions.

What could be the holdup? Certainly not the curiosity of A.J. Preller, the Padres' president of baseball operations. Preller crawls under rocks to find players to bring to San Diego and goes out and gets them.

While the overall tenor of this offseason has been slow, with more movement in January than in the month of December and the Winter Meetings, the Padres have clearly been limited for financial reasons. If they wanted to add a premier arm via free agency, that would cost anywhere from $20 million to $30 million. A hitter, especially with those remaining on the market, would be less than that. Not a problem, right? Petco Park is sold out basically every night, which means lots of food, drink and memorabilia sold at every home game.

Except for one thing. The Padres' payroll sits at about $226 million per Spotrac and $217 million per Cot's. Those are Opening Day salary numbers and not competitive-balance tax numbers, which are the ones that owners truly care about regarding paying potential penalties for various thresholds. Those jump up to $269 million and $263 million, respectively.

The level at which teams started paying a CBT penalty in 2025 was $241 million. The Padres' CBT payroll in 2025 was $270 million, on which they paid a 32% penalty on the amount above $241 million. That means a roughly $9.3 million tax from last year. The penalties increase each consecutive year a team is a payor. (For clarity, it is a 20% flat charge for a first-year violation on anything over the first threshold with a $12% addition for being $20 million-$40 million above that number. That gets you to 32%.)

That $241 million modestly increases to $244 million in 2026, per the current collective bargaining agreement. Taking the lower of the $269 million (Spotrac) and $263 million (Cot's) projected CBT payrolls, which includes benefits payments and contributions for the one-to-three-year player-pool bonuses, that puts the Friars at $19 million above the initial CBT threshold. As a second-year payor, that hikes the Padres' tax rate to a 30%, Going above $264 million, which is a certainty as the roster is currently constructed, adds the 12% penalty for being $20 million-$40 million above the initial threshold. That makes the total tax at this point 42%. At the lowest end of that, the Friars face an $8.4 million penalty. That is without spending another dollar above $264 million.

A $10 million signing or acquisition, barring any subtractions in a trade, would put that number at $274 million and a $12.6 million tax. Adding another $20 million in payroll this season would put the Padres at $284 million, which is $40 million above the initial threshold and jumps the 12% surcharge to 42.5%. That would make the penalty 72.5% for anything above $244 million and take the financial hit to $29 million.

For a team that has reportedly had past financial issues and is currently being shopped around for sale, that would seem to be a steep price. Unless, of course, a sale is further down the road than we are aware of and the new, deep-pocketed owner has given their approval. Which, as you know, is unlikely, and would still be a hard sell given the copious amounts of onerous, long-term contracts the Friars have on the books.

In 2023, the Padres had the highest payroll in franchise history at $291.2 million. This season is rapidly approaching besting last year's $270 million, the No. 2 figure. Pending changes to the CBA next offseason, the Friars are facing a third straight year of being a payor in 2027. Under the current system, that would hike the base tax rate from 30% to 50%.

The question remains: Are the Padres willing to spend more to compete or roll the dice with what they have?